Tesla Raises Prices Due to Increased Tariffs

May 14, 2019   

Following the Trump administration’s tariff increase on Chinese imports, Tesla has raised the price of all Model 3 configurations listed on its site by $400.

The tariff on Chinese imports coming into America has raised to 25 percent from 10 percent. Despite pleading with the administration for an exemption, Tesla will face a tariff on all parts utilized in its vehicles that are ultimately imported from China.

This applies to the new Full Self Driving hardware which Tesla engineered and produces in China. Tesla was cited as saying that it is only possible to build its new FSD hardware in China in order to meet its timelines as the complexity involved with manufacturing it in the U.S. would necessitate delays that would have pushed it out by at least a year. This is despite the fact that 75 percent of critical components on its custom-designed FSD hardware are produced in America, including the neural network chips which are produced by Samsung in Texas.

China has retaliated by threatening tariffs of its own, which would affect Tesla’s vehicle imports into the country going forward should they take effect as planned on June 1st. As a result, Tesla’s stock is at a 52-week low.

Model S and X thus far remain unaffected. We assume the Standard Range Model 3 available off-menu is also not subject to the price increase, as Tesla has remained committed to keeping the Model 3’s starting price at $35,000.

Real Talk

These tariffs couldn’t come for a worse time for the company, as it has begun adding the FSD hardware to all of its vehicles and Tesla is beginning to break ground in the Chinese market. Still, Tesla has stated that the new FSD hardware costs less to produce than its previous HW 2.5 solution created by NVIDIA so even with the tariff in effect it’s still more cost effective than the previous computer solution. Thus, Tesla is able to effectively eat the cost on its higher-margin vehicles but has decided to pass on some of the increased cost to Model 3 buyers

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